Tax Code_National Internal Revenue Code

7/24/2019 Tax Code_National Internal Revenue Code

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REPUBLIC ACT NO. 8424

TAX REFORM ACT OF 1997

AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND

FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

SECTION 1. Short Title- This Act shall be cited as the "Tax Reform Act of 1997".

SECTION 2. State Policy. It is hereby declared the policy of the State to promote

sustainable economic growth through the rationalization of the Philippine internal revenue tax

system, including tax administration; to provide, as much as possible, an equitable relief to a

greater number of taxpayers in order to improve levels of disposable income and increase

economic activity; and to create a robust environment for business to enable firms to compete

better in the regional as well as the global market, at the same time that the State ensures

that Government is able to provide for the needs of those under its jurisdiction and care.

SECTION 3. Presidential Decree No. 1158, as amended by, among others, Presidential

Decree No. 1994 and Executive Order No. 273, otherwise known as the National Internal

Revenue Code, is hereby further amended.

NATIONAL INTERNAL REVENUE CODE OF 1997 AND ITS AMENDMENTS

R.A. No.

TITLE

Date of Approval

Date of Effectivity

R.A. 8424 The National Internal Revenue

Code of 1997

December 11 1997January 1, 1998

R.A. 87!1 An Act Im"o#in$ The %alue&

Added Ta' on Certain (ervice#

)e$innin$ *anuar+ 1 2,,1

Amendin$ for the -ur"o#e

(ection of R.A. No. 8424 and

for /ther -ur"o#e#.

0ebruar+ 1 2,,, *anuar+ 1 2,,1
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R.A. 9,1, An Act To 0urther Defer The

Im"o#ition /f The %alue&Added

Ta' /n Certain (ervice#

Amendin$ 0or The -ur"o#e

(ection of R.A. No. 8424 A#

Amended b+ R.A. No. 87!1.

0ebruar+ 27 2,,1 *anuar+ 1 2,,

R.A. 9224 An Act Rationaliin$ the 3'ci#e

Ta' on Automobile# Amendin$

for the -ur"o#e the National

Internal Revenue Code of

1997 and for /ther -ur"o#e#.

Au$u#t 29 2,, /ctober 4 2,,

"ubli#hed on

(e"tember 18 2,,5

R.A. 928 An Act Amendin$ Certain

(ection# of the National


1997 a# Amended b+

3'cludin$ (everal (ervice#

from the Covera$e of the

%alue&added Ta' and Re&

im"o#in$ the 6ro## Recei"t#

Ta' on )an# and Non&ban

0inancial Intermediarie#

-erformin$ ua#i&)anin$

0unction# and /ther Non&)an

0inancial Intermediarie#

)e$innin$ *anuar+ 1 2,,4.

a"#ed into la: on

0eb. 2,,4 :ithout

the #i$nature of the

-re#ident in

accordance :ith

Article %I (ection

2715 of the

Con#titution.

*anuar+ 1 2,,4
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R.A. 924 An Act Rationaliin$ the

-rovi#ion# on the Documentar+

(tam" Ta' of The National


1997 a# Amended and for

/ther -ur"o#e#.

0ebruar+ 17 2,,4 ;arch 2, 2,,4

R.A. 9294 An Act Re#torin$ the Ta'

3'em"tion of /ff#hore )anin$


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R.A. 97

An Act Amendin$ (ection# 27

28 4 1,! 1,7 1,8 1,9

11, 111 112 11 114 11!

117 119 121 148 11 2!

27 and 288 of the National


1997 a# Amended and for

/ther -ur"o#e#.

A""roved on ;a+ 24

2,,.

It# effectivit+ clau#e

"rovide# that it #hall

tae effect *ul+ 1

2,, but due to a TR/

filed b+ #ome

ta'"a+er#. The la:

finall+ too effect

November 1 2,,

:hen the TR/ :a#

finall+ lifted b+ the

(u"reme Court

R.A. 9!1 An Act Amendin$ (ection

11,)5 of the National Internal

Revenue Code of 1997 a#

Amended and for /ther

-ur"o#e#.

A""roved on

November 21 2,,!

December 1 2,,!

"ubli#hed on

November 28 2,,!5

R.A. 9,4 An Act Amendin$ (ection# 22

24 4 1 and 79 of

Re"ublic Act No. 8424 A#

Amended /ther:i#e =no:n a#

the National Internal Revenue

Code of 1997.

A""roved on *une 17

2,,8 and too effect

on *ul+ ! 2,,8.

*ul+ ! 2,,8

R.A. 1,,,1 -ubli#hin$ the full te't of

Re"ublic Act No. 1,,,1 entitled

>An Act Reducin$ Ta'e# on ife

In#urance -olicie# Amendin$

for thi# (ection# 12 and 18 of

A""roved 0ebruar+

2 2,1,
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the National Internal Revenue

Code of 1997 a# Amended.>

R.A. 1,,21 An Act to Allo: the 3'chan$e

of Information )+ The )ureau

of Internal Revenue /n Ta'

;atter# -ur#uant to

Internationall+&A$reed Ta'

(tandard# Amendin$ (ection

!05 and 27, /f The National

Internal Revenue Code A#

Amended and 0or /ther

-ur"o#e#.

A""roved ;arch 8

2,1,

R.A. 1,,2! An Act 6rantin$ Income Ta'

3'em"tion To ocal ?ater

Di#trict# b+ Amendin$ (ection

27 C5 of the National Internal

Revenue Code of 1997 A#

Amended and Addin$ (ection

289&A To The Code 0or the

-ur"o#e#.

a"#ed into la: on

;arch 11 2,1,

:ithout the #i$nature

of the -re#ident in

accordance :ith

Article %I (ection 27

15 of the

Con#titution.5
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NIRC Outline

TITLE I ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE

TITLE II TAX ON INCOME

CHAPTER VII - ALLOWABLE DEDUCTIONS - A

CHAPTER VII - ALLOWABLE DEDUCTIONS - B

CHAPTER I - DEFINITIONS

CHAPTER II - GENERAL PRINCIPLES

CHAPTER III - TAX ON INDIVIDUALS

CHAPTER IV - TAX ON CORPORATIONS

CHAPTER V - COMPUTATION OF TAXABLE INCOME

CHAPTER VI - COMPUTATION OF GROSS INCOME

CHAPTER VII - ALLOWABLE DEDUCTIONS

CHAPTER VIII - ACCOUNTING PERIODS AND METHODS OF ACCOUNTING

CHAPTER IX - RETURNS AND PAYMENT OF TAX

CHAPTER X - ESTATES AND TRUSTS

CHAPTER XI - OTHER INCOME TAX REQUIREMENTS

CHAPTER XII - QUARTERLY CORPORATE INCOME TAX ANNUAL DECLARATION AND

QUARTERLY PAYMENTS OF INCOME TAXES

CHAPTER XIII - WITHHOLDING ON WAGES

TITLE III ESTATE AND DONOR'S TAXES

CHAPTER I - ESTATE TAX

CHAPTER II - DONOR'S TAX

TITLE IV VALUE- ADDED TAX

CHAPTER I - IMPOSITION OF TAX

CHAPTER II - COMPLIANCE REQUIREMENTS
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TITLE V OTHER PERCENTAGE TAXES

TITLE VI EXCISE TAXES ON CERTAIN GOODS

CHAPTER I - GENERAL PROVISIONS

CHAPTER II - EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN

ARTICLES

CHAPTER III- EXCISE TAX ON ALCOHOL PRODUCTS

CHAPTER IV - EXCISE TAX ON TOBACCO PRODUCTS

CHAPTER V - EXCISE TAX ON PETROLEUM PRODUCTS

CHAPTER VI EXCISE TAX ON MISCELLANEOUS ARTICLES

CHAPTER VII EXCISE TAX ON MINERAL PRODUCTS

CHAPTER VIII - ADMINISTRATIVE PROVISIONS REGULATING BUSINESS OF PERSONS

DEALING IN ARTICLES SUBJECT TO EXCISE TAX

TITLE VII DOCUMENTARY STAMP TAX

TITLE VIII REMEDIES

CHAPTER I - REMEDIES IN GENERAL

CHAPTER II - CIVIL REMEDIES FOR COLLECTION OF TAXES

CHAPTER III PROTESTING AN ASSESSMENT, REFUND, ETC.

TITLE IX COMPLIANCE REQUIREMENTS

CHAPTER I - KEEPING OF BOOKS OF ACCOUNTS AND RECORDS

CHAPTER II - ADMINISTRATIVE PROVISIONS

CHAPTER III - RULES AND REGULATIONS

TITLE X STATUTORY OFFENSES AND PENALTIES

CHAPTER I - ADDITIONS TO THE TAX

CHAPTER II - CRIMES, OTHER OFFENSES AND FORFEITURES

CHAPTER III - PENALTIES IMPOSED ON PUBLIC OFFICERS

CHAPTER IV - OTHER PENAL PROVISIONS
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TITLE XI ALLOTMENT OF INTERNAL REVENUE

CHAPTER I - DISPOSITION AND ALLOTMENT OF NATIONAL INTERNAL REVENUE IN

GENERAL

CHAPTER II - SPECIAL DISPOSITION OF CERTAIN NATIONAL INTERNAL REVENUE

TAXES

TITLE XII OVERSIGHT COMMITTEE

TITLE XIII REPEALING PROVISIONS

TITLE XIV FINAL PROVISIONS

ANNEXES

Annex A-1

Annex A-2

Annex A-3

Annex A-4

Annex B

Annex C-1

Annex C-2

Annex D

TITLE I ORGANIATION AND !"N#TION O! T$E %"REA" O! INTERNAL RE&EN"E

SECTION 1. Title of the Code.- This Code shall be known as the National Internal Revenue

Code of 1997.

SEC. 2. Powers and duties of the Bureau of Internal Revenue. - The Bureau of Internal

Revenue shall be under the supervision and control of the Department of Finance and its

powers and duties shall comprehend the assessment and collection of all national internal

revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines

connected therewith, including the execution of judgments in all cases decided in its favor by
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the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to and

administer the supervisory and police powers conferred to it by this Code or other laws.

SEC. 3. Chief Officials of the Bureau of Internal Revenue.- The Bureau of Internal

Revenue shall have a chief to be known as Commissioner of Internal Revenue, hereinafter

referred to as the Commissioner and four (4) assistant chiefs to be known as Deputy

Commissioners.

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. -

The power to interpret the provisions of this Code and other tax laws shall be under the

exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of

Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other

charges, penalties imposed in relation thereto, or other matters arising under this Code or

other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the

Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine,

and Take Testimony of Persons.- In ascertaining the correctness of any return, or in

making a return when none has been made, or in determining the liability of any person for

any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the

Commissioner is authorized:

(A) To examine any book, paper, record, or other data which may be relevant or material to

such inquiry;

(B) To Obtain on a regular basis from any person other than the person whose internal

revenue tax liability is subject to audit or investigation, or from any office or officer of the

national and local governments, government agencies and instrumentalities, including the

Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any

information such as, but not limited to, costs and volume of production, receipts or sales and

gross incomes of taxpayers, and the names, addresses, and financial statements of

corporations, mutual fund companies, insurance companies, regional operating headquarters

of multinational companies, joint accounts, associations, joint ventures of consortia and

registered partnerships, and their members;


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(C) To summon the person liable for tax or required to file a return, or any officer or employee

of such person, or any person having possession, custody, or care of the books of accounts

and other accounting records containing entries relating to the business of the person liable

for tax, or any other person, to appear before the Commissioner or his duly authorized

representative at a time and place specified in the summons and to produce such books,

papers, records, or other data, and to give testimony;

(D) To take such testimony of the person concerned, under oath, as may be relevant or

material to such inquiry; and

(E) To cause revenue officers and employees to make a canvass from time to time of any

revenue district or region and inquire after and concerning all persons therein who may be

liable to pay any internal revenue tax, and all persons owning or having the care,

management or possession of any object with respect to which a tax is imposed.

The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be

construed as granting the Commissioner the authority to inquire into bank deposits other than

as provided for in Section 6(F) of this Code.

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional

Requirements for Tax Administration and Enforcement.-

(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as

required under the provisions of this Code, the Commissioner or his duly authorized

representative may authorize the examination of any taxpayer and the assessment of the

correct amount of tax: Provided, however; That failure to file a return shall not prevent the

Commissioner from authorizing the examination of any taxpayer.The tax or any deficiency tax

so assessed shall be paid upon notice and demand from the Commissioner or from his duly

authorized representative.

Any return, statement of declaration filed in any office authorized to receive the same shall not

be withdrawn: Provided, That within three (3) years from the date of such filing , the same

may be modified, changed, or amended: Provided, further, That no notice for audit or

investigation of such return, statement or declaration has in the meantime been actually

served upon the taxpayer.

(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a

report required by law as a basis for the assessment of any national internal revenue tax shall


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not be forthcoming within the time fixed by laws or rules and regulations or when there is

reason to believe that any such report is false, incomplete or erroneous, the Commissioner

shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law,

or willfully or otherwise files a false or fraudulent return or other document, the Commissioner

shall make or amend the return from his own knowledge and from such information as he can

obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all

legal purposes.

(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross

Sales and Receipts. - The Commissioner may, at any time during the taxable year, order

inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax

liabilities, or may place the business operations of any person, natural or juridical, under

observation or surveillance if there is reason to believe that such person is not declaring his

correct income, sales or receipts for internal revenue tax purposes. The findings may be used

as the basis for assessing the taxes for the other months or quarters of the same or different

taxable years and such assessment shall be deemed prima facie correct.

When it is found that a person has failed to issue receipts and invoices in violation of the

requirements of Sections 113 and 237 of this Code, or when there is reason to believe that

the books of accounts or other records do not correctly reflect the declarations made or to be

made in a return required to be filed under the provisions of this Code, the Commissioner,

after taking into account the sales, receipts, income or other taxable base of other persons

engaged in similar businesses under similar situations or circumstances or after considering

other relevant information may prescribe a minimum amount of such gross receipts, sales and

taxable base, and such amount so prescribed shall be prima facie correct for purposes of

determining the internal revenue tax liabilities of such person.

(D) Authority to Terminate Taxable Period. _ When it shall come to the knowledge of the

Commissioner that a taxpayer is retiring from business subject to tax, or is intending to leave

the Philippines or to remove his property therefrom or to hide or conceal his property, or is

performing any act tending to obstruct the proceedings for the collection of the tax for the past

or current quarter or year or to render the same totally or partly ineffective unless such

proceedings are begun immediately, the Commissioner shall declare the tax period of such


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taxpayer terminated at any time and shall send the taxpayer a notice of such decision,

together with a request for the immediate payment of the tax for the period so declared

terminated and the tax for the preceding year or quarter, or such portion thereof as may be

unpaid, and said taxes shall be due and payable immediately and shall be subject to all the

penalties hereafter prescribed, unless paid within the time fixed in the demand made by the

Commissioner.

(E) Authority of the Commissioner to Prescribe Real Property Values. - The Commissioner is

hereby authorized to divide the Philippines into different zones or areas and shall, upon

consultation with competent appraisers both from the private and public sectors, determine

the fair market value of real properties located in each zone or area. For purposes of

computing any internal revenue tax, the value of the property shall be, whichever is the higher

of;

(1) the fair market value as determined by the Commissioner, or

(2) the fair market value as shown in the schedule of values of the Provincial and City

Assessors.

(F) Authority of the Commissioner to inquire into Bank Deposit Accounts. - Notwithstanding

any contrary provision of Republic Act No. 1405 and other general or special laws, the

Commissioner is hereby authorized to inquire into the bank deposits of:

(1) a decedent to determine his gross estate; and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec.

204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment of his tax liabilities on his

claim that his financial position demonstrates a clear inability to pay the tax assessed, his

application shall not be considered unless and until he waives in writing his privilege under

Republic act NO. 1405 or under other general or special laws, and such waiver shall

constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

(G) Authority to Accredit and Register Tax Agents. - The Commissioner shall accredit and

register, based on their professional competence, integrity and moral fitness, individuals and

general professional partnerships and their representatives who prepare and file tax returns,

statements, reports, protests, and other papers with or who appear before, the Bureau for

taxpayers. Within one hundred twenty (120) days from January 1, 1998, the Commissioner


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shall create national and regional accreditation boards, the members of which shall serve for

three (3) years, and shall designate from among the senior officials of the Bureau, one (1)

chairman and two (2) members for each board, subject to such rules and regulations as the

Secretary of Finance shall promulgate upon the recommendation of the Commissioner.

Individuals and general professional partnerships and their representatives who are denied

accreditation by the Commissioner and/or the national and regional accreditation boards may

appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60)

days from receipt of such appeal. Failure of the Secretary of Finance to rule on the Appeal

within the prescribed period shall be deemed as approval of the application for accreditation

of the appellant.

(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary

Requirements. - The Commissioner may prescribe the manner of compliance with any

documentary or procedural requirement in connection with the submission or preparation of

financial statements accompanying the tax returns.

SEC. 7. - Authority of the Commissioner to Delegate Power.- The Commissioner may

delegate the powers vested in him under the pertinent provisions of this Code to any or such

subordinate officials with the rank equivalent to a division chief or higher, subject to such

limitations and restrictions as may be imposed under rules and regulations to be promulgated

by the Secretary of finance, upon recommendation of the Commissioner: Provided, However,

That the following powers of the Commissioner shall not be delegated:

(a) The power to recommend the promulgation of rules and regulations by the Secretary of

Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing

ruling of the Bureau;

(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax

liability: Provided, however, That assessments issued by the regional offices involving basic

deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal

violations, as may be determined by rules and regulations to be promulgated by the Secretary

of finance, upon recommendation of the Commissioner, discovered by regional and district

officials, may be compromised by a regional evaluation board which shall be composed of the

Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal,


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Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over

the taxpayer, as members; and

(d) The power to assign or reassign internal revenue officers to establishments where articles

subject to excise tax are produced or kept.

SEC. 8. Duty of the Commissioner to Ensure the Provision and Distribution of forms,

Receipts, Certificates, and Appliances, and the Acknowledgment of Payment of Taxes. -

(A) Provision and Distribution to Proper Officials. - It shall be the duty of the Commissioner,

among other things, to prescribe, provide, and distribute to the proper officials the requisite

licenses internal revenue stamps, labels all other forms, certificates, bonds, records, invoices,

books, receipts, instruments, appliances and apparatus used in administering the laws falling

within the jurisdiction of the Bureau. For this purpose, internal revenue stamps, strip stamps

and labels shall be caused by the Commissioner to be printed with adequate security

features.Internal revenue stamps, whether of a bar code or fuson design, shall be firmly and

conspicuously affixed on each pack of cigars and cigarettes subject to excise tax in the

manner and form as prescribed by the Commissioner, upon approval of the Secretary of

Finance.

(B) Receipts for Payment Made. - It shall be the duty of the Commissioner or his duly

authorized representative or an authorized agent bank to whom any payment of any tax is

made under the provision of this Code to acknowledge the payment of such tax, expressing

the amount paid and the particular account for which such payment was made in a form and

manner prescribed therefor by the Commissioner.

SEC. 9. - Internal Revenue Districts.- With the approval of the Secretary of Finance, the

Commissioner shall divide the Philippines into such number of revenue districts as may form

time to time be required for administrative purposes. Each of these districts shall be under the

supervision of a Revenue District Officer.

SEC. 10. - Revenue Regional Director.- Under rules and regulations, policies and

standards formulated by the Commissioner, with the approval of the Secretary of Finance, the

Revenue Regional director shall, within the region and district offices under his jurisdiction,

among others:

(a) Implement laws, policies, plans, programs, rules and regulations of the department or

agencies in the regional area;


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(b) Administer and enforce internal revenue laws, and rules and regulations, including the

assessment and collection of all internal revenue taxes, charges and fees.

(c) Issue Letters of authority for the examination of taxpayers within the region;

(d) Provide economical, efficient and effective service to the people in the area;

(e) Coordinate with regional offices or other departments, bureaus and agencies in the area;

(f) Coordinate with local government units in the area;

(g) Exercise control and supervision over the officers and employees within the region; and

(h) Perform such other functions as may be provided by law and as may be delegated by the

Commissioner.

SEC. 11. Duties of Revenue District Officers and Other Internal Revenue Officers. - It

shall be the duty of every Revenue District Officer or other internal revenue officers and

employees to ensure that all laws, and rules and regulations affecting national internal

revenue are faithfully executed and complied with, and to aid in the prevention, detection and

punishment of frauds of delinquencies in connection therewith.It shall be the duty of every

Revenue District Officer to examine the efficiency of all officers and employees of the Bureau

of Internal Revenue under his supervision, and to report in writing to the Commissioner,

through the Regional Director, any neglect of duty, incompetency, delinquency, or

malfeasance in office of any internal revenue officer of which he may obtain knowledge, with a

statement of all the facts and any evidence sustaining each case.

SEC. 12. Agents and Deputies for Collection of National Internal Revenue Taxes.- The

following are hereby constituted agents of the Commissioner:

(a) The Commissioner of Customs and his subordinates with respect to the collection of

national internal revenue taxes on imported goods;

(b) The head of the appropriate government office and his subordinates with respect to the

collection of energy tax; and

(c) Banks duly accredited by the Commissioner with respect to receipt of payments internal

revenue taxes authorized to be made thru bank.

Any officer or employee of an authorized agent bank assigned to receive internal revenue tax

payments and transmit tax returns or documents to the Bureau of Internal Revenue shall be

subject to the same sanctions and penalties prescribed in Sections 269 and 270 of this Code.


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SEC. 13. - Authority of a Revenue Offices.- subject to the rules and regulations to be

prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a

Revenue Officer assigned to perform assessment functions in any district may, pursuant to a

Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the

jurisdiction of the district in order to collect the correct amount of tax, or to recommend the

assessment of any deficiency tax due in the same manner that the said acts could have been

performed by the Revenue Regional Director himself.

SEC. 14. Authority of Officers to Administer Oaths and Take Testimony. - The

Commissioner, Deputy Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue

Regional Directors, Assistant Revenue Regional Directors, Chiefs and Assistant Chiefs of

Divisions, Revenue District Officers, special deputies of the Commissioner, internal revenue

officers and any other employee of the Bureau thereunto especially deputized by the

Commissioner shall have the power to administer oaths and to take testimony in any official

matter or investigation conducted by them regarding matters within the jurisdiction of the

Bureau.

SEC. 15. Authority of Internal Revenue Officers to Make Arrests and Seizures. - The

Commissioner, the Deputy Commissioners, the Revenue Regional Directors, the Revenue

District Officers and other internal revenue officers shall have authority to make arrests and

seizures for the violation of any penal law, rule or regulation administered by the Bureau of

Internal Revenue. Any person so arrested shall be forthwith brought before a court, there to

be dealt with according to law.

SEC. 16. Assignment of Internal Revenue Officers Involved in Excise Tax Functions to

Establishments Where Articles subject to Excise Tax are Produced or Kept. - The

Commissioner shall employ, assign, or reassign internal revenue officers involved in excise

tax functions, as often as the exigencies of the revenue service may require, to

establishments or places where articles subject to excise tax are produced or kept: Provided,

That an internal revenue officer assigned to any such establishment shall in no case stay in

his assignment for more than two (2) years, subject to rules and regulations to be prescribed

by the Secretary of Finance, upon recommendation of the Commissioner.

SEC. 17. Assignment of Internal Revenue Officers and Other Employees to Other

Duties.- The Commissioner may, subject to the provisions of Section 16 and the laws on civil


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service, as well as the rules and regulations to be prescribed by the Secretary of Finance

upon the recommendation of the Commissioner, assign or reassign internal revenue officers

and employees of the Bureau of Internal Revenue, without change in their official rank and

salary, to other or special duties connected with the enforcement or administration of the

revenue laws as the exigencies of the service may require: Provided, That internal revenue

officers assigned to perform assessment or collection function shall not remain in the same

assignment for more than three (3) years; Provided, further, That assignment of internal

revenue officers and employees of the Bureau to special duties shall not exceed one (1) year.

SEC. 18. Reports of violation of Laws.- When an internal revenue officer discovers

evidence of a violation of this Code or of any law, rule or regulations administered by the

Bureau of Internal Revenue of such character as to warrant the institution of criminal

proceedings, he shall immediately report the facts to the Commissioner through his

immediate superior, giving the name and address of the offender and the names of the

witnesses if possible: Provided, That in urgent cases, the Revenue Regional director or

Revenue District Officer, as the case may be, may send the report to the corresponding

prosecuting officer in the latter case, a copy of his report shall be sent to the Commissioner.

SEC. 19. Contents of Commissioner's Annual Report.- The annual Report of the

Commissioner shall contain detailed statements of the collections of the Bureau with

specifications of the sources of revenue by type of tax, by manner of payment, by revenue

region and by industry group and its disbursements by classes of expenditures.

In case the actual collection exceeds or falls short of target as set in the annual national

budget by fifteen percent (15%) or more, the Commissioner shall explain the reason for such

excess or shortfall.

SEC. 20. Submission of Report and Pertinent Information by the Commissioner.

(A) Submission of Pertinent Information to Congress. - The provision of Section 270 of this

Code to the contrary notwithstanding, the Commissioner shall, upon request of Congress and

in aid of legislation, furnish its appropriate Committee pertinent information including but not

limited to: industry audits, collection performance data, status reports in criminal actions

initiated against persons and taxpayer's returns: Provided, however, That any return or return

information which can be associated with, or otherwise identify, directly or indirectly, a

particular taxpayer shall be furnished the appropriate Committee of Congress only when


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sitting in Executive Session Unless such taxpayer otherwise consents in writing to such

disclosure.

(B) Report to Oversight Committee. - The Commissioner shall, with reference to Section 204

of this Code, submit to the Oversight Committee referred to in Section 290 hereof, through the

Chairmen of the Committee on Ways and Means of the Senate and House of

Representatives, a report on the exercise of his powers pursuant to the said section, every six

(6) months of each calendar year.

SEC. 21. Sources of Revenue.- The following taxes, fees and charges are deemed to be

national internal revenue taxes:

(a) Income tax;

(b) Estate and donor's taxes;

(c) Value-added tax;

(d) Other percentage taxes;

(e) Excise taxes;

(f) Documentary stamp taxes; and

(g) Such other taxes as are or hereafter may be imposed and collected by the Bureau of

Internal Revenue.

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TITLE II TA' ON IN#O(E

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SEC. 34. Deductions from Gross Income.- Except for taxpayers earning compensation

income arising from personal services rendered under an employer-employee relationship

where no deductions shall be allowed under this Section other than under subsection (M)

hereof, in computing taxable income subject to income tax under Sections 24 (A); 25 (A); 26;

27 (A), (B) and (C); and 28 (A) (1), there shall be allowed the following deductions from gross

income;

(A) Expenses.-

(1) Ordinary and Necessary Trade, Business or Professional Expenses.-
http://www.bir.gov.ph/index.php/tax-code.html#outlinehttp://www.bir.gov.ph/index.php/tax-code.html#outline


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(a) In General. - There shall be allowed as deduction from gross income all the ordinary and

necessary expenses paid or incurred during the taxable year in carrying on or which are

directly attributable to, the development, management, operation and/or conduct of the trade,

business or exercise of a profession, including:

(i) A reasonable allowance for salaries, wages, and other forms of compensation for personal

services actually rendered, including the grossed-up monetary value of fringe benefit

furnished or granted by the employer to the employee: Provided, That the final tax imposed

under Section 33 hereof has been paid;

(ii) A reasonable allowance for travel expenses, here and abroad, while away from home in

the pursuit of trade, business or profession;

(iii) A reasonable allowance for rentals and/or other payments which are required as a

condition for the continued use or possession, for purposes of the trade, business or

profession, of property to which the taxpayer has not taken or is not taking title or in which he

has no equity other than that of a lessee, user or possessor;

(iv) A reasonable allowance for entertainment, amusement and recreation expenses during

the taxable year, that are directly connected to the development, management and operation

of the trade, business or profession of the taxpayer, or that are directly related to or in

furtherance of the conduct of his or its trade, business or exercise of a profession not to

exceed such ceilings as the Secretary of Finance may, by rules and regulations prescribe,

upon recommendation of the Commissioner, taking into account the needs as well as the

special circumstances, nature and character of the industry, trade, business, or profession of

the taxpayer: Provided, That any expense incurred for entertainment, amusement or

recreation that is contrary to law, morals public policy or public order shall in no case be

allowed as a deduction.

(b) Substantiation Requirements. - No deduction from gross income shall be allowed under

Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as

official receipts or other adequate records: (i) the amount of the expense being deducted, and

(ii) the direct connection or relation of the expense being deducted to the development,

management, operation and/or conduct of the trade, business or profession of the taxpayer.

(c) Bribes, Kickbacks and Other Similar Payments. - No deduction from gross income shall be

allowed under Subsection (A) hereof for any payment made, directly or indirectly, to an official


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or employee of the national government, or to an official or employee of any local government

unit, or to an official or employee of a government-owned or -controlled corporation, or to an

official or employee or representative of a foreign government, or to a private corporation,

general professional partnership, or a similar entity, if the payment constitutes a bribe or

kickback.

(2) Expenses Allowable to Private Educational Institutions.- In addition to the expenses

allowable as deductions under this Chapter, a private educational institution, referred to under

Section 27 (B) of this Code, may at its option elect either: (a) to deduct expenditures

otherwise considered as capital outlays of depreciable assets incurred during the taxable year

for the expansion of school facilities or (b) to deduct allowance for depreciation thereof under

Subsection (F) hereof.

(B) Interest.-

(1) In General.- The amount of interest paid or incurred within a taxable year on

indebtedness in connection with the taxpayer's profession, trade or business shall be allowed

as deduction from gross income: Provided, however, That the taxpayer's otherwise allowable

deduction for interest expense shall be reduced by an amount equal to the following

percentages of the interest income subjected to final tax:

Forty-one percent (41%) beginning January 1, 1998;Thirty-nine percent (39%) beginning

January 1, 1999; andThirty-eight percent (38%) beginning January 1, 2000;

(2) Exceptions.- No deduction shall be allowed in respect of interest under the succeeding

subparagraphs:

(a) If within the taxable year an individual taxpayer reporting income on the cash basis incurs

an indebtedness on which an interest is paid in advance through discount or otherwise:

Provided, That such interest shall be allowed a a deduction in the year the indebtedness is

paid: Provided, further, That if the indebtedness is payable in periodic amortizations, the

amount of interest which corresponds to the amount of the principal amortized or paid during

the year shall be allowed as deduction in such taxable year;

(b)If both the taxpayer and the person to whom the payment has been made or is to be made

are persons specified under Section 36 (B); or

(c)If the indebtedness is incurred to finance petroleum exploration.


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(3) Optional Treatment of Interest Expense.- At the option of the taxpayer, interest incurred

to acquire property used in trade business or exercise of a profession may be allowed as a

deduction or treated as a capital expenditure.

(C) Taxes. -

(1) In General.- Taxes paid or incurred within the taxable year in connection with the

taxpayer's profession, trade or business, shall be allowed as deduction, except

(a) The income tax provided for under this Title;

(b) Income taxes imposed by authority of any foreign country; but this deduction shall be

allowed in the case of a taxpayer who does not signify in his return his desire to have to any

extent the benefits of paragraph (3) of this subsection (relating to credits for taxes of foreign

countries);

(c) Estate and donor's taxes; and

(d) Taxes assessed against local benefits of a kind tending to increase the value of the

property assessed.

Provided, That taxes allowed under this Subsection, when refunded or credited, shall be

included as part of gross income in the year of receipt to the extent of the income tax benefit

of said deduction.

(2) Limitations on Deductions.- In the case of a nonresident alien individual engaged in

trade or business in the Philippines and a resident foreign corporation, the deductions for

taxes provided in paragraph (1) of this Subsection (C) shall be allowed only if and to the

extent that they are connected with income from sources within the Philippines.

(3) Credit Against Tax for Taxes of Foreign Countries. - If the taxpayer signifies in his

return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be

credited with:

(a) Citizen and Domestic Corporation. - In the case of a citizen of the Philippines and of a

domestic corporation, the amount of income taxes paid or incurred during the taxable year to

any foreign country; and

(b) Partnerships and Estates. - In the case of any such individual who is a member of a

general professional partnership or a beneficiary of an estate or trust, his proportionate share

of such taxes of the general professional partnership or the estate or trust paid or incurred


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during the taxable year to a foreign country, if his distributive share of the income of such

partnership or trust is reported for taxation under this Title.

An alien individual and a foreign corporation shall not be allowed the credits against the tax

for the taxes of foreign countries allowed under this paragraph.

(4) Limitations on Credit.- The amount of the credit taken under this Section shall be

subject to each of the following limitations:

(a) The amount of the credit in respect to the tax paid or incurred to any country shall not

exceed the same proportion of the tax against which such credit is taken, which the

taxpayer's taxable income from sources within such country under this Title bears to his entire

taxable income for the same taxable year; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against

which such credit is taken, which the taxpayer's taxable income from sources without the

Philippines taxable under this Title bears to his entire taxable income for the same taxable

year.

(5) Adjustments on Payment of Incurred Taxes.- If accrued taxes when paid differ from the

amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part,

the taxpayer shall notify the Commissioner; who shall redetermine the amount of the tax for

the year or years affected, and the amount of tax due upon such redetermination, if any, shall

be paid by the taxpayer upon notice and demand by the Commissioner, or the amount of tax

overpaid, if any, shall be credited or refunded to the taxpayer. In the case of such a tax

incurred but not paid, the Commissioner as a condition precedent to the allowance of this

credit may require the taxpayer to give a bond with sureties satisfactory to and to be approved

by the Commissioner in such sum as he may require, conditioned upon the payment by the

taxpayer of any amount of tax found due upon any such redetermination. The bond herein

prescribed shall contain such further conditions as the Commissioner may require.

(6) Year in Which Credit Taken.- The credits provided for in Subsection (C)(3) of this

Section may, at the option of the taxpayer and irrespective of the method of accounting

employed in keeping his books, be taken in the year which the taxes of the foreign country

were incurred, subject, however, to the conditions prescribed in Subsection (C)(5) of this

Section. If the taxpayer elects to take such credits in the year in which the taxes of the foreign

country accrued, the credits for all subsequent years shall be taken upon the same basis and


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no portion of any such taxes shall be allowed as a deduction in the same or any succeeding

year.

(7)Proof of Credits.- The credits provided in Subsection (C)(3) hereof shall be allowed only

if the taxpayer establishes to the satisfaction of the Commissioner the following:

(a) The total amount of income derived from sources without the Philippines;

(b) The amount of income derived from each country, the tax paid or incurred to which is

claimed as a credit under said paragraph, such amount to be determined under rules and

regulations prescribed by the Secretary of Finance; and

(c) All other information necessary for the verification and computation of such credits.

(D) Losses. -

(1) In General. - Losses actually sustained during the taxable year and not compensated for

by insurance or other forms of indemnity shall be allowed as deductions:

(a) If incurred in trade, profession or business;

(b) Of property connected with the trade, business or profession, if the loss arises from fires,

storms, shipwreck, or other casualties, or from robbery, theft or embezzlement.

The Secretary of Finance, upon recommendation of the Commissioner, is hereby authorized

to promulgate rules and regulations prescribing, among other things, the time and manner by

which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery,

theft or embezzlement during the taxable year: Provided, however, That the time limit to be so

prescribed in the rules and regulations shall not be less than thirty (30) days nor more than

ninety (90) days from the date of discovery of the casualty or robbery, theft or embezzlement

giving rise to the loss.

(c) No loss shall be allowed as a deduction under this Subsection if at the time of the filing of

the return, such loss has been claimed as a deduction for estate tax purposes in the estate

tax return.

(2) Proof of Loss.- In the case of a nonresident alien individual or foreign corporation, the

losses deductible shall be those actually sustained during the year incurred in business, trade

or exercise of a profession conducted within the Philippines, when such losses are not

compensated for by insurance or other forms of indemnity. The secretary of Finance, upon

recommendation of the Commissioner, is hereby authorized to promulgate rules and

regulations prescribing, among other things, the time and manner by which the taxpayer shall


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submit a declaration of loss sustained from casualty or from robbery, theft or embezzlement

during the taxable year: Provided, That the time to be so prescribed in the rules and

regulations shall not be less than thirty (30) days nor more than ninety (90) days from the date

of discovery of the casualty or robbery, theft or embezzlement giving rise to the loss; and

(3) Net Operating Loss Carry-Over.- The net operating loss of the business or enterprise

for any taxable year immediately preceding the current taxable year, which had not been

previously offset as deduction from gross income shall be carried over as a deduction from

gross income for the next three (3) consecutive taxable years immediately following the year

of such loss: Provided, however, That any net loss incurred in a taxable year during which the

taxpayer was exempt from income tax shall not be allowed as a deduction under this

Subsection: Provided, further, That a net operating loss carry-over shall be allowed only if

there has been no substantial change in the ownership of the business or enterprise in that -

(i) Not less than seventy-five percent (75%) in nominal value of outstanding issued shares., if

the business is in the name of a corporation, is held by or on behalf of the same persons;

or(ii) Not less than seventy-five percent (75%) of the paid up capital of the corporation, if the

business is in the name of a corporation, is held by or on behalf of the same persons.

"For purposes of this subsection, the term 'not operating loss' shall mean the excess of

allowable deduction over gross income of the business in a taxable year.

Provided, That for mines other than oil and gas wells, a net operating loss without the benefit

of incentives provided for under Executive Order No. 226, as amended, otherwise known as

the Omnibus Investments Code of 1987, incurred in any of the first ten (10) years of operation

may be carried over as a deduction from taxable income for the next five (5) years

immediately following the year of such loss. The entire amount of the loss shall be carried

over to the first of the five (5) taxable years following the loss, and any portion of such loss

which exceeds, the taxable income of such first year shall be deducted in like manner form

the taxable income of the next remaining four (4) years.

(4) Capital Losses.-

(a) Limitation. - Loss from sales or Exchanges of capital assets shall be allowed only to the

extent provided in Section 39.

(b) Securities Becoming worthless. - If securities as defined in Section 22 (T) become

worthless during the taxable year and are capital assets, the loss resulting therefrom shall, for


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purposes of this Title, be considered as a loss from the sale or exchange, on the last day of

such taxable year, of capital assets.

(5) Losses From Wash Sales of Stock or Securities.- Losses from 'wash sales' of stock or

securities as provided in Section 38.

(6) Wagering Losses.- Losses from wagering transactions shall b allowed only to the extent

of the gains from such transactions.

(7) Abandonment Losses.-

(a) In the event a contract area where petroleum operations are undertaken is partially or

wholly abandoned, all accumulated exploration and development expenditures pertaining

thereto shall be allowed as a deduction: Provided, That accumulated expenditures incurred in

that area prior to January 1, 1979 shall be allowed as a deduction only from any income

derived from the same contract area. In all cases, notices of abandonment shall be filed with

the Commissioner.

(b) In case a producing well is subsequently abandoned, the unamortized costs thereof, as

well as the undepreciated costs of equipment directly used therein , shall be allowed as a

deduction in the year such well, equipment or facility is abandoned by the contractor:

Provided, That if such abandoned well is reentered and production is resumed, or if such

equipment or facility is restored into service, the said costs shall be included as part of gross

income in the year of resumption or restoration and shall be amortized or depreciated, as the

case may be.

(E) Bad Debts.-

(1) In General.- Debts due to the taxpayer actually ascertained to be worthless and charged

off within the taxable year except those not connected with profession, trade or business and

those sustained in a transaction entered into between parties mentioned under Section 36 (B)

of this Code: Provided, That recovery of bad debts previously allowed as deduction in the

preceding years shall be included as part of the gross income in the year of recovery to the

extent of the income tax benefit of said deduction.

(2) Securities Becoming Worthless.- If securities, as defined in Section 22 (T), are

ascertained to be worthless and charged off within the taxable year and are capital assets,

the loss resulting therefrom shall, in the case of a taxpayer other than a bank or trust

company incorporated under the laws of the Philippines a substantial part of whose business


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is the receipt of deposits, for the purpose of this Title, be considered as a loss from the sale or

exchange, on the last day of such taxable year, of capital assets.

(F) Depreciation.-

(1) General Rule.- There shall be allowed as a depreciation deduction a reasonable

allowance for the exhaustion, wear and tear (including reasonable allowance for

obsolescence) of property used in the trade or business. In the case of property held by one

person for life with remainder to another person, the deduction shall be computed as if the life

tenant were the absolute owner of the property and shall be allowed to the life tenant. In the

case of property held in trust, the allowable deduction shall be apportioned between the

income beneficiaries and the trustees in accordance with the pertinent provisions of the

instrument creating the trust, or in the absence of such provisions, on the basis of the trust

income allowable to each.

(2) Use of Certain Methods and Rates.- The term 'reasonable allowance' as used in the

preceding paragraph shall include, but not limited to, an allowance computed in accordance

with rules and regulations prescribed by the Secretary of Finance, upon recommendation of

the Commissioner, under any of the following methods:

(a) The straight-line method;(b) Declining-balance method, using a rate not exceeding twice

the rate which would have been used had the annual allowance been computed under the

method described in Subsection (F) (1);(c) The sum-of-the-years-digit method; and(d) any

other method which may be prescribed by the Secretary of Finance upon recommendation of

the Commissioner.

(3) Agreement as to Useful Life on Which Depreciation Rate is Based. - Where under

rules and regulations prescribed by the Secretary of Finance upon recommendation of the

Commissioner, the taxpayer and the Commissioner have entered into an agreement in writing

specifically dealing with the useful life and rate of depreciation of any property, the rate so

agreed upon shall be binding on both the taxpayer and the national Government in the

absence of facts and circumstances not taken into consideration during the adoption of such

agreement. The responsibility of establishing the existence of such facts and circumstances

shall rest with the party initiating the modification. Any change in the agreed rate and useful

life of the depreciable property as specified in the agreement shall not be effective for taxable


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years prior to the taxable year in which notice in writing by certified mail or registered mail is

served by the party initiating such change to the other party to the agreement:

Provided, however, that where the taxpayer has adopted such useful life and depreciation

rate for any depreciable and claimed the depreciation expenses as deduction from his gross

income, without any written objection on the part of the Commissioner or his duly authorized

representatives, the aforesaid useful life and depreciation rate so adopted by the taxpayer for

the aforesaid depreciable asset shall be considered binding for purposes of this Subsection.

(4) Depreciation of Properties Used in Petroleum Operations.- An allowance for

depreciation in respect of all properties directly related to production of petroleum initially

placed in service in a taxable year shall be allowed under the straight-line or declining-

balance method of depreciation at the option of the service contractor.

However, if the service contractor initially elects the declining-balance method, it may at any

subsequent date, shift to the straight-line method.

The useful life of properties used in or related to production of petroleum shall be ten (10)

years of such shorter life as may be permitted by the Commissioner.

Properties not used directly in the production of petroleum shall be depreciated under the

straight-line method on the basis of an estimated useful life of five (5) years.

(5) Depreciation of Properties Used in Mining Operations. - an allowance for depreciation

in respect of all properties used in mining operations other than petroleum operations, shall

be computed as follows:

(a) At the normal rate of depreciation if the expected life is ten (10) years or less; or

(b) Depreciated over any number of years between five (5) years and the expected life if the

latter is more than ten (10) years, and the depreciation thereon allowed as deduction from

taxable income: Provided, That the contractor notifies the Commissioner at the beginning of

the depreciation period which depreciation rate allowed by this Section will be used.

(6) Depreciation Deductible by Nonresident Aliens Engaged in Trade or Business or Resident

Foreign Corporations. - In the case of a nonresident alien individual engaged in trade or

business or resident foreign corporation, a reasonable allowance for the deterioration of

Property arising out of its use or employment or its non-use in the business trade or

profession shall be permitted only when such property is located in the Philippines.

(G) Depletion of Oil and Gas Wells and Mines.-


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(1) In General.- In the case of oil and gas wells or mines, a reasonable allowance for

depletion or amortization computed in accordance with the cost-depletion method shall be

granted under rules and regulations to be prescribed by the Secretary of finance, upon

recommendation of the Commissioner. Provided, That when the allowance for depletion shall

equal the capital invested no further allowance shall be granted: Provided, further, That after

production in commercial quantities has commenced, certain intangible exploration and

development drilling costs: (a) shall be deductible in the year incurred if such expenditures

are incurred for non-producing wells and/or mines, or (b) shall be deductible in full in the year

paid or incurred or at the election of the taxpayer, may be capitalized and amortized if such

expenditures incurred are for producing wells and/or mines in the same contract area.

'Intangible costs in petroleum operations' refers to any cost incurred in petroleum operations

which in itself has no salvage value and which is incidental to and necessary for the drilling of

wells and preparation of wells for the production of petroleum: Provided, That said costs shall

not pertain to the acquisition or improvement of property of a character subject to the

allowance for depreciation except that the allowances for depreciation on such property shall

be deductible under this Subsection.

Any intangible exploration, drilling and development expenses allowed as a deduction in

computing taxable income during the year shall not be taken into consideration in computing

the adjusted cost basis for the purpose of computing allowable cost depletion.

(2) Election to Deduct Exploration and Development Expenditures.- In computing

taxable income from mining operations, the taxpayer may at his option, deduct exploration

and development expenditures accumulated as cost or adjusted basis for cost depletion as of

date of prospecting, as well as exploration and development expenditures paid or incurred

during the taxable year: Provided, That the amount deductible for exploration and

development expenditures shall not exceed twenty-five percent (25%) of the net income from

mining operations computed without the benefit of any tax incentives under existing laws. The

actual exploration and development expenditures minus twenty-five percent (25%) of the net

income from mining shall be carried forward to the succeeding years until fully deducted.

The election by the taxpayer to deduct the exploration and development expenditures is

irrevocable and shall be binding in succeeding taxable years.


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'Net income from mining operations', as used in this Subsection, shall mean gross income

from operations less 'allowable deductions' which are necessary or related to mining

operations. 'Allowable deductions' shall include mining, milling and marketing expenses, and

depreciation of properties directly used in the mining operations. This paragraph shall not

apply to expenditures for the acquisition or improvement of property of a character which is

subject to the allowance for depreciation.

In no case shall this paragraph apply with respect to amounts paid or incurred for the

exploration and development of oil and gas.

The term 'exploration expenditures' means expenditures paid or incurred for the purpose of

ascertaining the existence, location, extent or quality of any deposit of ore or other mineral,

and paid or incurred before the beginning of the development stage of the mine or deposit.

The term 'development expenditures' means expenditures paid or incurred during the

development stage of the mine or other natural deposits. The development stage of a mine or

other natural deposit shall begin at the time when deposits of ore or other minerals are shown

to exist in sufficient commercial quantity and quality and shall end upon commencement of

actual commercial extraction.

(3) Depletion of Oil and Gas Wells and Mines Deductible by a Nonresident Alien

individual or Foreign Corporation.- In the case of a nonresident alien individual engaged in

trade or business in the Philippines or a resident foreign corporation, allowance for depletion

of oil and gas wells or mines under paragraph (1) of this Subsection shall be authorized only

in respect to oil and gas wells or mines located within the Philippines.

(H) Charitable and Other Contributions.-

(1) In General.- Contributions or gifts actually paid or made within the taxable year to, or for

the use of the Government of the Philippines or any of its agencies or any political subdivision

thereof exclusively for public purposes, or to accredited domestic corporation or associations

organized and operated exclusively for religious, charitable, scientific, youth and sports

development, cultural or educational purposes or for the rehabilitation of veterans, or to social

welfare institutions, or to non-government organizations, in accordance with rules and

regulations promulgated by the Secretary of finance, upon recommendation of the

Commissioner, no part of the net income of which inures to the benefit of any private

stockholder or individual in an amount not in excess of ten percent (10%) in the case of an


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individual, and five percent (%) in the case of a corporation, of the taxpayer's taxable income

derived from trade, business or profession as computed without the benefit of this and the

following subparagraphs.

(2) Contributions Deductible in Full.- Notwithstanding the provisions of the preceding

subparagraph, donations to the following institutions or entities shall be deductible in full;

(a) Donations to the Government. - Donations to the Government of the Philippines or to any

of its agencies or political subdivisions, including fully-owned government corporations,

exclusively to finance, to provide for, or to be used in undertaking priority activities in

education, health, youth and sports development, human settlements, science and culture,

and in economic development according to a National Priority Plan determined by the

National Economic and Development Authority (NEDA), In consultation with appropriate

government agencies, including its regional development councils and private philantrophic

persons and institutions: Provided, That any donation which is made to the Government or to

any of its agencies or political subdivisions not in accordance with the said annual priority plan

shall be subject to the limitations prescribed in paragraph (1) of this Subsection;

(b) Donations to Certain Foreign Institutions or International Organizations. - donations to

foreign institutions or international organizations which are fully deductible in pursuance of or

in compliance with agreements, treaties, or commitments entered into by the Government of

the Philippines and the foreign institutions or international organizations or in pursuance of

special laws;

(c) Donations to Accredited Nongovernment Organizations. - the term 'nongovernment

organization' means a non profit domestic corporation:

(1) Organized and operated exclusively for scientific, research, educational, character-

building and youth and sports development, health, social welfare, cultural or charitable

purposes, or a combination thereof, no part of the net income of which inures to the benefit of

any private individual;

(2) Which, not later than the 15th day of the third month after the close of the accredited

nongovernment organizations taxable year in which contributions are received, makes

utilization directly for the active conduct of the activities constituting the purpose or function

for which it is organized and operated, unless an extended period is granted by the Secretary


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of Finance in accordance with the rules and regulations to be promulgated, upon

recommendation of the Commissioner;

(3) The level of administrative expense of which shall, on an annual basis, conform with the

rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of

the Commissioner, but in no case to exceed thirty percent (30%) of the total expenses; and

(4) The assets of which, in the even of dissolution, would be distributed to another nonprofit

domestic corporation organized for similar purpose or purposes, or to the state for public

purpose, or would be distributed by a court to another organization to be used in such manner

as in the judgment of said court shall best accomplish the general purpose for which the

dissolved organization was organized.

Subject to such terms and conditions as may be prescribed by the Secretary of Finance, the

term 'utilization' means:

(i) Any amount in cash or in kind (including administrative expenses) paid or utilized to

accomplish one or more purposes for which the accredited nongovernment organization was

created or organized.(ii) Any amount paid to acquire an asset used (or held for use) directly in

carrying out one or more purposes for which the accredited nongovernment organization was

created or organized.

An amount set aside for a specific project which comes within one or more purposes of the

accredited nongovernment organization may be treated as a utilization, but only if at the time

such amount is set aside, the accredited nongovernment organization has established to the

satisfaction of the Commissioner that the amount will be paid for the specific project within a

period to be prescribed in rules and regulations to be promulgated by the Secretary of

Finance, upon recommendation of the Commissioner, but not to exceed five (5) years, and

the project is one which can be better accomplished by setting aside such amount than by

immediate payment of funds.

(3) Valuation.- The amount of any charitable contribution of property other than money shall

be based on the acquisition cost of said property.

(4) Proof of Deductions.- Contributions or gifts shall be allowable as deductions only if

verified under the rules and regulations prescribed by the Secretary of Finance, upon

recommendation of the Commissioner.

(I) Research and Development. -


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(1) In General.- a taxpayer may treat research or development expenditures which are paid

or incurred by him during the taxable year in connection with his trade, business or profession

as ordinary and necessary expenses which are not chargeable to capital account. The

expenditures so treated shall be allowed as deduction during the taxable year when paid or

incurred.

(2) Amortization of Certain Research and Development Expenditures.- At the election of

the taxpayer and in accordance with the rules and regulations to be prescribed by the

Secretary of Finance, upon recommendation of the Commissioner, the following research and

development expenditures may be treated as deferred expenses:

(a) Paid or incurred by the taxpayer in connection with his trade, business or profession;(b)

Not treated as expenses under paragraph 91) hereof; and(c) Chargeable to capital account

but not chargeable to property of a character which is subject to depreciation or depletion.

In computing taxable income, such deferred expenses shall be allowed as deduction ratably

distributed over a period of not less than sixty (60) months as may be elected by the taxpayer

(beginning with the month in which the taxpayer first realizes benefits from such

expenditures).

The election provided by paragraph (2) hereof may be made for any taxable year beginning

after the effectivity of this Code, but only if made not later than the time prescribed by law for

filing the return for such taxable year. The method so elected, and the period selected by the

taxpayer, shall be adhered to in computing taxable income for the taxable year for which the

election is made and for all subsequent taxable years unless with the approval of the

Commissioner, a change to a different method is authorized with respect to a part or all of

such expenditures. The election shall not apply to any expenditure paid or incurred during any

taxable year for which the taxpayer makes the election.

(3) Limitations on deduction.- This Subsection shall not apply to:

(a) Any expenditure for the acquisition or improvement of land, or for the improvement of

property to be used in connection with research and development of a character which is

subject to depreciation and depletion; and

(b) Any expenditure paid or incurred for the purpose of ascertaining the existence, location,

extent, or quality of any deposit of ore or other mineral, including oil or gas.


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(J) Pension Trusts.- An employer establishing or maintaining a pension trust to provide for

the payment of reasonable pensions to his employees shall be allowed as a deduction (in

addition to the contributions to such trust during the taxable year to cover the pension liability

accruing during the year, allowed as a deduction under Subsection (A) (1) of this Section ) a

reasonable amount transferred or paid into such trust during the taxable year in excess of

such contributions, but only if such amount (1)has not theretofore been allowed as a

deduction, and (2) is apportioned in equal parts over a period of ten (10) consecutive years

beginning with the year in which the transfer or payment is made.

(K) Additional Requirements for Deductibility of Certain Payments.- Any amount paid or

payable which is otherwise deductible from, or taken into account in computing gross income

or for which depreciation or amortization may be allowed under this Section, shall be allowed

as a deduction only if it is shown that the tax required to be deducted and withheld therefrom

has been paid to the Bureau of Internal Revenue in accordance with this Section 58 and 81 of

this Code.

(L) Optional Standard Deduction.- In lieu of the deductions allowed under the preceding

Subsections, an individual subject to tax under Section 24, other than a nonresident alien,

may elect a standard deduction in an amount not exceeding ten percent (10%) of his gross

income. Unless the taxpayer signifies in his return his intention to elect the optional standard

deduction, he shall be considered as having availed himself of the deductions allowed in the

preceding Subsections. Such election when made in the return shall be irrevocable for the

taxable year for which the return is made: Provided, That an individual who is entitled to and

claimed for the optional standard deduction shall not be required to submit with his tax return

such financial statements otherwise required under this Code: Provided, further, That except

when the Commissioner otherwise permits, the said individual shall keep such records

pertaining to his gross income during the taxable year, as may be required by the rules and

regulations promulgated by the Secretary of Finance, upon recommendation of the

Commissioner.

(M) Premium Payments on Health and/or Hospitalization Insurance of an Individual

Taxpayer.- the amount of premiums not to exceed Two thousand four hundred pesos

(P2,400) per family or Two hundred pesos (P200) a month paid during the taxable year for

health and/or hospitalization insurance taken by the taxpayer for himself, including his family,


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shall be allowed as a deduction from his gross income: Provided, That said family has a gross

income of not more than Two hundred fifty thousand pesos (P250,000) for the taxable year:

Provided, finally, That in the case of married taxpayers, only the spouse claiming the

additional exemption for dependents shall be entitled to this deduction.

Notwithstanding the provision of the preceding Subsections, The Secretary of Finance, upon

recommendation of the Commissioner, after a public hearing shall have been held for this

purpose, may prescribe by rules and regulations, limitations or ceilings for any of the itemized

deductions under Subsections (A) to (J) of this Section: Provided, That for purposes of

determining such ceilings or limitations, the Secretary of Finance shall consider the following

factors: (1) adequacy of the prescribed limits on the actual expenditure requirements of each

particular industry; and (2)effects of inflation on expenditure levels: Provided, further, That no

ceilings shall further be imposed on items of expense already subject to ceilings under

present law.

SEC. 35. Allowance of Personal Exemption for Individual Taxpayer.-

(A) In General.- For purposes of determining the tax provided in Section 24 (A) of this Title,

there shall be allowed a basic personal exemption as follows:

For single individual or married individual judicially decreed as legallyseparated with no

qualified dependents P20,000For Head of Family P25,000For each married individual

P32,000

In the case of married individuals where only one of the spouses is deriving gross income,

only such spouse shall be allowed the personal exemption.

For purposes of this paragraph, the term 'head of family' means an unmarried or legally

separated man or woman with one or both parents, or with one or more brothers or sisters, or

with one or more legitimate, recognized natural or legally adopted children living with and

dependent upon him for their chief support, where such brothers or sisters or children are not

more than twenty-one (21) years of age, unmarried and not gainfully employed or where such

children, brothers or sisters, regardless of age are incapable of self-support because of

mental or physical defect.

(B) Additional Exemption for Dependents.- There shall be allowed an additional exemption

of Eight thousand pesos (P8,000) for each dependent not exceeding four (4).


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The additional exemption for dependent shall be claimed by only one of the spouses in the

case of married individuals.

In the case of legally separated spouses, additional exemptions may be claimed only by the

spouse who has custody of the child or children: Provided, That the total amount of additional

exemptions that may be claimed by both shall not exceed the maximum additional

exemptions herein allowed.

For purposes of this Subsection, a 'dependent' means a legitimate, illegitimate or legally

adopted child chiefly dependent upon and living with the taxpayer if such dependent is not

more than twenty-one (21) years of age, unmarried and not gainfully employed or if such

dependent, regardless of age, is incapable of self-support because of mental or physical

defect.

(C) Change of Status.- If the taxpayer marries or should have additional dependent(s) as

defined above during the taxable year, the taxpayer may claim the corresponding additional

exemption, as the case may be, in full for such year.

If the taxpayer dies during the taxable year, his estate may still claim the personal and

additional exemptions for himself and his dependent(s) as if he died at the close of such year.

If the spouse or any of the dependents dies or if any of such dependents marries, becomes

twenty-one (

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